LLC, Partnership & Corporate Taxation

Business decisions and tax reporting belong in the same conversation. Philip Falco, Attorney & CPA, helps business owners coordinate entity selection, operating agreements, tax returns, ownership changes, and the tax consequences of buying, selling, or leaving a business.

Use this guide to find the resources that fit your entity and the decision you face. The partnership and LLC guides address federal taxation; Colorado formation, contracts, and state reporting may require additional review.

Start With the Entity’s Tax Classification

“LLC” describes a legal structure, not one universal federal tax treatment. A domestic LLC with multiple members generally defaults to partnership taxation; a single-member LLC generally is disregarded for income tax unless corporate treatment is elected. An eligible entity may elect S corporation treatment. Confirm the actual classification and elections before applying rules about basis, distributions, losses, or an owner’s exit. See the IRS explanation of LLC classifications.

For help establishing or reviewing the structure, see Business Formation & Services and New Entity, EIN & Tax Classification.

Partnership & LLC Taxation

For a partnership or an LLC taxed as a partnership, the entity’s return and the owners’ individual tax positions must be considered together. Capital accounts, outside basis, liability allocations, distributions, and suspended losses can produce different results even for owners of the same business.

Ongoing Reporting and Owner Basis

• Partnership and LLC Tax Return Preparation — Form 1065, Schedules K-1, allocations, capital accounts, and coordinated partner reporting.
• Outside Basis vs. K-1 Capital Account — understand why the two balances differ and which records support the owner’s tax calculation.
• Promissory Notes, Guarantees, and Partnership Basis — examine the effect of contributions and liability arrangements.

Leaving a Partnership or LLC

Before signing an exit agreement, identify whether the transaction is a sale, redemption, or abandonment, what the owner receives, and what happens to debt. These guides address the separate parts of that review:

• Abandonment of a Partnership or LLC Interest — when an ordinary loss may be available and why receiving no cash is not enough.
• LLC Member Buyout: Sale vs. Redemption — compare transaction structures, payment terms, and ordinary versus capital treatment.
• Hedge Fund Partner Buyout Tax — fund, management-company, and general-partner exits; hot assets, installment timing, and retirement payments.
• Debt Relief When a Partner Leaves — review liability changes that can affect proceeds, basis, and loss character.
• Suspended Passive Losses on Exit — distinguish passive losses from basis and at-risk carryforwards.
• Final K-1 Reporting Checklist — reconcile the agreement, allocations, liabilities, and owner’s return.

S Corporation & Corporate Taxation

Corporate tax treatment raises different questions from partnership taxation. Review the entity’s election status, owner compensation, shareholder basis, distributions, and the form of any business sale. S corporation stock and debt basis should not be calculated using partnership rules.

• S Corporation Taxation and Return Preparation — coordinate Form 1120-S, shareholder K-1s, and owner reporting.
• Shareholder Basis and Form 7203 — who files, stock and debt basis, and the connection to Form 1120-S.
• S Corporation Requirements and Distributions — issues involving the requirements for S corporation treatment.
• Business Tax Preparation — discuss the business’s classification, filing needs, and related owner returns.

For a corporation purchase or sale, start with Purchase & Sale of Businesses to discuss stock-versus-asset structure and the parties’ tax positions. C corporation matters require review of corporate-level taxation as well as shareholder consequences.

Business Formation, Purchases & Sales

The documents that establish ownership and govern transactions can have lasting tax effects. Formation, operating agreements, financing, contracts, and a future exit should be considered together.

• Business Formation & Services — entity formation, LLC operating agreements, contracts, and coordinated legal and accounting services.
• Purchase & Sale of Businesses — transaction structure, negotiation, documentation, and tax consequences.
• New Entity, EIN & Tax Classification — decisions to address when establishing the business.
• Tax Strategy & Planning — review significant decisions before the transaction and tax position become fixed.
• Year-Round Tax Advisory — ongoing planning as ownership, income, and business needs change.

Family Investment and Management Companies

Families coordinating investment entities, trusts, and a management company can explore family office tax planning. Review business status, compensation, expenses, and the separate tax treatment of the manager and its clients before implementing the structure.

Real Estate & Related Business Resources

Some business questions require a more specific resource:

• Real Estate Legal and Tax Services and Commercial Real Estate Holding Entities.
• Beneficial Ownership Information Reporting, with the related BOIR video. Check the current written guidance before relying on older material.
• Colorado S Corporation and Partnership Filing — DR 0106.
• Form 1065 and Form 1120-S Filing Deadlines and Penalties.
• Foreign Business Ownership and U.S. Tax Reporting.